Municipal securities can come through the market as a new issue on a competitive or negotiated basis. A competitive underwriting is when broker dealer compete to get bids on a new issue of bonds. The municipal issuer will choose the lowest net total cost to them.
General Obligation bonds are only done on a competitive basis. This is because a G O Bond is backed by tax dollars so the underwriting must be done competitively. Revenue municipal issues can be done negotiated or competitive since their bonds are backed by user revenue and not tax dollars.
Other items involved in an underwriting include:
Notice Of Sale - this is when the municipal issues posts an offering announcement of a bond that is coming out in the future. Broker Dealers will bid on the bonds using this form.
Official statement - This is the prospectus of a municipal issue during the underwriting period. It is the most detailed document regarding the issue. All important information related to the issue will be shown in the official statement.
Muni Bond Investing
Municipal Securities
Thursday, November 15, 2007
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2 comments:
Out of many methods you can invest your money Municipal Bonds happen to be one of the famous. However when you invest in Municipal Bonds you have to be aware of municipal bond rates too. Municipal bonds rating indicate the merit of municipal bonds which depends on whether the bond is backed by the full faith, credit, and taxing powers of the municipality or by revenues generated by the municipal facility the bond issue finances. Consider issuer-specific information such as the wealth of the community, characteristic of the issuer, revenue stream of the project the bond is used to fund. By examining the municipal bond, you can see if it should have high ratings or low based on the factors above.
Rating is important, but that is more for the marketability of the bond in the secondary market and not so much a true credit concern for the bondholder. The truth is while very few corporate bonds default almost no Municipal bonds ever default. States and larger authorities will cover many time.
Still, if the rating goes south, so will the price and thus the value of the investment wil be less.
Tax Free Muni Bond
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